Corruption and drought threaten to wither the economy of India

Rhys Blakely Mumbai

http://business.timesonline.co.uk/tol/business/markets/india/article6812795.ece

*“The apathy of the local government has been the main cause of the recent despair, along with ongoing massive corruption in the relief packages announced by the central Government,” he said. “Nobody is monitoring their progress.”-kishor Tiwari

Dilip, a desperately poor farmer deep in debt, was only 25 years old. Two weeks ago, unable to see a way out of his predicament, he drank a bottle of Endosulfan, a pesticide so toxic that it is banned in Britain, though it is widely available in India.

“He committed suicide because the rains had not come,” Rekha, his wife, told The Times, sitting on her haunches in her tiny dilapidated shack.

The crops growing on their three-acre smallholding had shrivelled in the sun, giving Dilip no chance of repaying his debt of 18,000 rupees (£227).

Dilip left Rekha, 20, with two small children to provide for — and little else. The family is now among the worst-hit victims of a drought that has gripped India and threatens the economic security of millions.

“We are in God’s hands now,” she added, still seemingly in shock.

Signs of the monsoon’s failure are easy to find in Hiwara, the small village in the western state of Maharashtra where Rehka lives.

Five of the village’s six boreholes no longer produce water. In the surrounding area, farmers have started to sell cattle at knockdown prices — a classic indicator of agrarian distress.

The soya crop of Kisan Naitam, 65, another local farmer, has been attacked by military worm, a pest that he says has thrived in the dry conditions. It has left the plants frail skeletons, their leaves eaten away between their veins. “It’s all ruined,” he shrugs.

It’s not only the farmers who are feeling the pressure. Nilesh Narayan Develwar, 24, owns a small grocery store in the village.

He says his sales have plummeted as people forgo anything not absolutely necessary — luxuries such as soap, coconut oil to lacquer their hair and cold remedies.

“Those who would buy 1kg of lentils now buy a quarter of that amount,” Mr Develwar said. His takings have fallen to 1,000 rupees a day, down from 2,500 rupees previously. Such are the effects of India’s worst monsoon in years. In the past few days, there has been some rain in Hiwara but it has come too late for the summer crops of soya and sorghum. Cotton, the region’s most important cash crop, is hardier and will fare better, but yields will still fall sharply.

The story is the same across the country. The monsoon’s tropical downpours, which are supposed to last for four months from June, usually account for about 80 per cent of India’s annual rainfall.

But in June, the rains were 46 per cent below normal, the worst level since 1926, leaving rice nurseries parched. From June to mid-August, the rains were 30 per cent below normal, with some areas suffering a 60 per cent shortfall.

The shockwaves will be felt across the Indian economy. Agriculture may account for only 18 per cent of GDP, but 60 per cent of Indians — or more than 700 million people — depend on it for their livelihood.

The vast cushion of domestic demand provided by these poor rural consumers had been a key factor in allowing India to weather the global credit crunch largely unscathed.

The economy had been ticking over largely on increased purchases of basic goods such as toothpaste and pressure cookers – the kind of purchases that poor consumers make when they have a little extra disposable income.

If Mr Develwar’s story is typical, the failed rains have crushed demand for such items and economists will have to rethink their basic assumptions and downgrade their growth forecasts.

Citigroup says a weak monsoon could knock India’s GDP growth from an estimated 6.8 per cent this fiscal year to as low as 5.2 per cent. Analysts closer to the ground share the same downbeat assessment.

Shrikant Nandurkar, the manager of the State Bank of India (SBI) branch in the town of Pandharkawda, close to Rekha’s village, says he is “100 per cent worried”.

Of his 4,500 customers, 60 per cent are farmers — most of whom have borrowed to buy seeds, fertilisers and pesticides to grow crops that have withered in the fields.

He said: “There has been a little rain recently, but that will not help the crops now standing in the fields. At least 50 per cent of it is lost for good. People will not be able to pay back their loans.”

Amid the looming crisis, local government officials say that the state has things in hand and will provide financial assistance where necessary. Ministers in New Delhi note that stocks of foodgrains are ample and should counter against inflation.

But the drought has raised doubts over the effectiveness of a huge agricultural aid package revealed by the Indian Government last year. In the run-up to the general election it spent nearly 700 billion rupees on waiving loans for impoverished farmers.

The flagship policy was immensely popular and helped to win a second term for the incumbent Congress Party. However, it has done little, if anything, to help farmers to deal with this year’s failed monsoon.

According to Kishore Tiwari, a local activist, 42 farmers have committed suicide this month in the Vidarbha area of Maharashtra — the region where the tragic Dilip lived. He said that he believed that a key cause has been alleged corruption in the distribution of government subsidies.

“The apathy of the local government has been the main cause of the recent despair, along with ongoing massive corruption in the relief packages announced by the central Government,” he said. “Nobody is monitoring their progress.”

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